2024-08-14
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On August 9, according to an announcement disclosed by the Shanghai Stock Exchange, Jiangsu Pioneer Precision Technology Co., Ltd. (hereinafter referred to as "Pioneer Precision") will make its first listing on the Science and Technology Innovation Board on August 16.
Pioneer Precision is a domestic manufacturer of key components in the semiconductor etching and thin film deposition equipment segments. It applied for an IPO on the Science and Technology Innovation Board on June 7, 2023. After a long wait of nearly 14 months, it finally took a substantive step forward.
Although the global semiconductor industry is in a cyclical recovery and domestic substitution in the domestic semiconductor industry chain is also surging, whether Pioneer Precision can successfully go public is still under great test.
Performance fluctuates significantly, and sustainability is questionable
Due to the combined effects of factors such as expansion cycle and innovation cycle, the semiconductor industry has typical cyclical characteristics, usually completing a round of cyclical fluctuations every 4-5 years, showing a spiral upward characteristic, with 2-3 years in the upward channel and 3-6 quarters in the downward channel.
According to WSTS forecast, the global semiconductor market will re-enter the upward cycle in 2024 after experiencing a cyclical trough, as follows:
The field of semiconductor equipment precision components in which Pioneer Precision is located is the upstream of the semiconductor industry, so the overall development of the industry will have a significant impact on the company's operating performance.
This has also been proven by the disclosed financial data. From 2021 to 2023, when the semiconductor industry was in a downward cycle, Pioneer Precision's revenue was 424 million yuan, 470 million yuan, and 558 million yuan respectively; net profit was 105 million yuan, 105 million yuan, and 80 million yuan respectively, with weak growth.
Since the second half of 2023, with the downstream semiconductor equipment market re-entering the upward cycle and the continuous advancement of the localization process, in the first half of 2024, Pioneer Precision's revenue increased by 147.04% year-on-year to 548 million yuan; net profit increased by 314.23% year-on-year to 112 million yuan.
What is worrying is that if the industry enters a cyclical downward channel in the future, affected by the capital expenditure cuts of wafer manufacturers and semiconductor equipment companies, Pioneer Precision's new orders are likely to decline, which will in turn affect the company's operating performance.
It is worth noting that Pioneer Precision has been in a state of relatively tight funds for a long time. In 2021, 2022, 2023 and January-March 2024, Pioneer Precision continued to purchase related production equipment and other fixed assets, and the net cash flow generated by investment activities in each period was negative.
Even so, Pioneer Precision still paid large dividends in 2021 and 2022, with a total cash dividend of 108 million yuan, accounting for 51.43% of the total net profit attributable to the company in the two years. According to the shareholding ratio, more than half of it went into the pocket of You Li, the actual controller of the company.
In this IPO, Pioneer Precision intends to raise 587 million yuan to invest in four major projects, including the "Jingjiang Precision Assembly Parts Manufacturing Base Expansion and Upgrade Project" and the "Wuxi Xianyan Equipment Module Production and Assembly Base Project", of which nearly 100 million yuan will be used to replenish working capital. After the generous dividend, Pioneer Precision also intends to raise funds to replenish working capital in this IPO. Part of the raised funds are actually used to supplement working capital, which makes people doubt the purpose of its listing.
High customer concentration, highly dependent on the top five customers
The prospectus shows that Pioneer Precision's products have entered the leading domestic semiconductor equipment manufacturers, and its main customers include China Micro Semiconductor, North Huachuang, and Tuojing Technology.
In 2021, 2022, 2023 and January-March 2024, Pioneer Precision's sales revenue to its top five customers totaled RMB 353.1892 million, RMB 384.7138 million, RMB 420.8700 million and RMB 183.5893 million, respectively, accounting for 83.37%, 81.90%, 75.46% and 84.81% of the operating income in the same period, respectively, with a high customer concentration.
At the end of each period of the reporting period, the book balance of Pioneer Precision's accounts receivable was RMB 174.1743 million, RMB 151.3809 million, RMB 238.6859 million and RMB 316.3971 million, respectively, showing an overall upward trend; the accounts receivable turnover rates were 3.11, 2.89, 2.86 and 0.78, respectively, showing a trend of first decreasing and then increasing.
As of the end of 2023, the main customers of Pioneer Precision with the largest increase in accounts receivable are North Huachuang, Microguide Nano and Tuojing Technology, all of which are leading companies in the industry. Among them, North Huachuang's accounts receivable balance increased by RMB 34.8432 million compared with the end of 2022, and Tuojing Technology's accounts receivable balance increased by RMB 12.3635 million compared with the end of 2022, which are the main factors for the increase in accounts receivable balance.
At the end of March 2024, Pioneer Precision's accounts receivable continued to increase, mainly due to the continued recovery of the semiconductor industry since the third quarter of 2023, a significant increase in the company's revenue in the first quarter of 2024, and most of the receivables had not yet reached the credit period at the end of the reporting period.
Related-party transactions are frequent, and the industry has little say
It is worth noting that the relationship between Pioneer Precision and its major customers and suppliers is “not simple”.
AMEC directly holds 1.93% of Pioneer Precision's shares, SMIC indirectly holds 0.91% of Pioneer Precision's shares through the Small and Medium Enterprise Development Fund, and North Huachuang indirectly holds Pioneer Precision's shares through the Beijing Integrated Circuit Fund (the proportion is less than 0.01%).
Among the top five outsourcing suppliers of Pioneer Precision, suppliers that only or mainly provide outsourcing processing services to the issuer include Jingjiang Jiaren, Lele Precision and Jingjiang Xinhenghe. Among them, Lele Precision is also the largest supplier of customized parts in each period of the reporting period. The aforementioned suppliers all have equity relations or financial transactions with Pioneer Precision; Jingjiang Xinhenghe has helped the issuer to transfer loans, and its average processing price for the same material number in 2020 was 23.97% lower than that of Suzhou Yuhang; in addition, there is also a situation of providing guarantees for the related supplier Jiajia Precision.
In 2021, 2022, 2023 and January-March 2024, Pioneer Precision cancelled the registration of a number of affiliated companies, including Suzhou Junmao, which was once controlled by You Hui, the younger brother of You Li, the actual controller of the issuer, Qitian Airlines, which was once controlled by Shao Jia and Li Huan, and Jingjiang Jingcheng, which it had invested in.
From 2020 to 2022, in the recurring related-party transactions, the sales to related parties mainly sold scrap to Jingjiang Shunxi and Jingjiang Jiaren. The revenue from the sales of scrap by Pioneer Precision to Jingjiang Shunxi and Jingjiang Jiaren accounted for about 90% of the issuer's overall scrap revenue. At the same time, the proportion of Pioneer Precision's scrap recycled by Jingjiang Shunxi accounted for about 75% of the total scrap it recycled. The discount rate for Pioneer Precision's aluminum scrap sales to Jingjiang Jiaren and Jingjiang Shunxi was 75%, which was lower than the prices or quotations of other customers (80%, 82% and 85%).
Such phenomena have attracted regulatory attention. In the second round of review inquiry letters, the Shanghai Stock Exchange required Pioneer Precision to explain whether there are significant differences in the processing prices of the same or similar processing procedures of different suppliers, and to analyze whether the prices of purchasing services/custom parts from related parties are fair by comparing the corresponding outsourcing amounts of comparative products; and to quantitatively analyze whether the transaction prices with Lele Precision are fair, and whether the contract terms and transaction methods are significantly different from those of other suppliers.
However, Pioneer Precision stated in its reply letter that the company's purchase prices from related parties were fair.
In addition, from the perspective of the industry's competitive landscape, Pioneer Precision's products in the semiconductor field are mainly various types of precision metal parts. Compared with comparable companies in the same industry, it does not involve gas pipelines for the time being, and the revenue scale of module products is also relatively small.
Although Pioneer Precision's market share in similar parts for etching equipment and thin-film deposition equipment in mainland China is basically the same as that of comparable companies in the same industry, due to the relatively concentrated product types of the company and its relatively single main business, the company's business scale is still relatively small compared with companies in the same industry in the United States, Japan and Taiwan.
In the IPO application materials, Pioneer Precision selected five companies, including Fuchuang Precision, Kema Technology, Ferrotec, Jingding Precision, and Chaokelin, as its recognized comparable companies in the same industry. From the comparison of operating conditions and key business data, Pioneer Precision still has a certain gap in overall operating scale with industry leaders.